sales tax is a tax on the sale, collected from the buyer and passed to the government. income tax is on your profit; sales tax was never your money — you're just the collector.
the key concept is nexus: a connection to a place strong enough that it can make you collect its tax. you automatically have nexus where you live and work. everywhere else, you only get it by crossing that place's threshold.
economic nexus and thresholds
since 2018 (the Wayfair decision), US states can require collection based on sales volume alone — no office or employees needed. that's economic nexus.
typical state thresholds:
- $100,000 in sales into the state per year (most states)
- some states: 200 transactions per year, either/or
- a few are higher: California, Texas, New York at $500,000
what this means in practice: a solo SaaS at $200k ARR spread across all 50 states almost never crosses any single state's threshold except their home state. distance from thresholds is your friend — most solo founders owe collection in exactly one state, often zero.
zero because of the next concept: taxability. many states don't tax SaaS at all.
- SaaS taxable: New York, Texas, Pennsylvania, Washington, ~20 others
- SaaS not taxable: California, Florida, Colorado (mostly), ~25 others
- rules differ for B2B vs B2C in some states (e.g. Ohio taxes B2B SaaS)
so the real question is the intersection: where do i have nexus AND is my product taxable there? for many solo founders the answer is "home state only, and my state doesn't tax SaaS" — nothing to collect.
EU VAT
the EU works differently: there is no threshold for selling digital services to EU consumers. the first €1 sale to a German consumer technically creates a VAT obligation at Germany's rate.
what makes this manageable:
- OSS (One-Stop Shop, formerly MOSS): register in one EU country, file one quarterly return covering all EU consumer sales, instead of registering in 27 countries
- B2B sales: reverse charge — the business customer self-accounts for VAT, you collect nothing (you validate their VAT number and note "reverse charge" on the invoice)
- non-EU sellers use the non-union OSS scheme
in practice: if your EU consumer revenue is a few hundred euros a quarter, many non-EU solo founders defer this until the numbers matter. that's a risk decision, not legal advice — but know that enforcement against tiny foreign sellers is rare, and the fix (OSS registration) is available when you grow into it.
what your platforms already do
this is where solo founders usually over-worry. two common cases:
App Store / Google Play: Apple and Google are the merchant of record. they calculate, collect, and remit sales tax and VAT globally for your app sales and in-app purchases. you never touch it. your payout is already net of it. nothing to register, nothing to file.
Stripe: Stripe is NOT the merchant of record by default — the obligation is yours. but Stripe Tax automates the mechanics:
- monitors your sales against every state/country threshold and alerts when you approach nexus
- once you add a registration, it calculates and collects the right rate per sale
- gives you reports per jurisdiction for filing (filing itself is still on you, or via a service)
the order matters: register first, then enable collection for that jurisdiction. collecting tax where you're not registered is worse than not collecting — you're holding tax money with nowhere to remit it.
alternative: a merchant of record like Paddle or Lemon Squeezy takes the whole problem (they're the seller, they handle global tax) in exchange for ~5% fees. worth it when your sales are genuinely global and you'd rather pay than think about it.
common mistakes
- panicking early: monitoring thresholds ≠ owing tax. most solo founders are far below every threshold except home state
- collecting without registering: enable Stripe Tax collection only for jurisdictions where you actually registered
- ignoring home state: economic nexus talk distracts from the one place you definitely have nexus — check whether your home state taxes SaaS
- forgetting app store sales are done: don't double-count App Store revenue in sales tax planning — Apple already handled it
- treating B2B EU sales like consumer sales: reverse charge means you usually collect nothing from EU businesses
- mixing up sales tax and income tax: crossing a sales tax threshold in a state doesn't by itself create income tax there (different rules)
when to care
- under ~$100k revenue, mostly B2B or app-store: probably nothing to do beyond knowing your home state's rule
- growing US consumer SaaS on Stripe: turn on Stripe Tax monitoring now, register when it alerts
- meaningful EU consumer revenue: register for OSS (non-union scheme if you're non-EU)
- global consumer scale and no patience for this: consider a merchant of record
related guides:
- schedule c — income tax side for sole proprietors
- record keeping — what to keep for filings